CANADA FX DEBT-Canadian dollar steadies ahead of January jobs report

By Fergal Smith

TORONTO, Feb 6 (Reuters) - The Canadian dollar steadied against its U.S. counterpart on Thursday as investors awaited monthly employment data that could guide expectations for further divergence in policy between the U.S. Federal Reserve and the Bank of Canada.

The loonie CAD= was trading nearly unchanged at 1.4310 per U.S. dollar, or 69.88 U.S. cents, after moving in a range of 1.4304 to 1.4366.

The currency has rebounded from a 22-year low of 1.4793 on Monday as Canada escaped immediate implementation of U.S. trade tariffs.

"More range trading is likely in the short run," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

"Positioning remains heavily short CAD, suggesting scope for a decent squeeze if the trade news does turn suddenly better. But the CAD's yield deficit remains a big impediment to a major rebound at the moment."

With the BoC cutting interest rates faster than the Fed, the Canadian 2-year yield CA2YT=RR has fallen about 160 basis points below its U.S. equivalent, the largest gap since September 1997.

U.S. and Canadian employment data for January is due on Friday. Economists forecast that Canada's economy added 25,000 jobs, downshifting from roughly 91,000 in December.

Ivey Purchasing Managers Index (PMI) data on Thursday showed that Canadian economic activity contracted for the first time in five months in January as employment grew at a slower pace and prices heated up.

The Canadian dollar is set to edge lower over the coming months as the threat of U.S. trade tariffs remains in place, but the currency is expected to recover and trade at a higher level in one year, a Reuters poll found.

The price of oil CLc1, one of Canada's major exports, was trading 0.5% lower at $70.69 a barrel, while Canadian bond yields moved higher across the curve. The 10-year CA10YT=RR was up 4.3 basis points at 2.994%.